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Principles of Corporate Finance is the worldwide leading text that describes the theory and practice of corporate finance. Throughout the book the authors show how managers use financial theory to solve practical problems and as a way of learning how to respond to change by showing not just how but why companies and management act as they do. The text is comprehensive, authoritative, and modern and yet the material is presented at a common sense level. The discussions and illustrations are unique due to the depth of detail blended with a distinct sense of humor for which the book is well known and highly regarded. This text is a valued reference for thousands of practicing financial managers.Richard A. Brealey and Stewart C. Myers welcome Franklin Allen as a new coauthor to this Eighth Edition. Sometimes the addition of a new coauthor means that one of the existing authors proposes to take a back seat. That is not the case with this team. Dr. Allen's addition represents a genuine increase in capacity and brings fresh expertise and ideas to an already tremendously successful textbook and partnership.

Franklin Allen is Nippon Life Professor of Finance at the Wharton School of the University of Pennsylvania.

Part One VALUE

1

(143)

Finance and the Financial Manager

4

(10)

What Is a Corporation?

5

(1)

The Role of the Financial Manager

6

(2)

Who Is the Financial Manager?

8

(1)

Separation of Ownership and Management

9

(2)

Topics Covered in this Book

11

(3)

Summary

12

(1)

Further Reading

12

(1)

Concept Review Questions

13

(1)

Quiz

13

(1)

Present Values, the Objectives of the Firm, and Corporate Governance

14

(20)

Introduction to Present Value

15

(5)

Calculating Future and Present Value

Net Present Value

Risk and Present Value

Present Values and Rates of Return

The Opportunity Cost of Capital

A Source of Confusion

Foundations of the Net Present Value Rule

20

(5)

How Capital Markets Reconcile Preferences for Current vs. Future Consumption

A Fundamental Result

Other Corporate Goals

Corporate Goals and Corporate Governance

25

(9)

Should Managers Look after the Interests of Shareholders?

Should Firms Be Managed for Shareholders or All Stakeholders?

Summary

28

(2)

Further Reading

30

(1)

Concept Review Questions

30

(1)

Quiz

30

(1)

Practice Questions

31

(1)

Challenge Questions

32

(2)

How to Calculate Present Values

34

(22)

Valuing Long-Lived Assets

35

(4)

Valuing Cash Flows in Several Periods

Why the Discount Factor Declines As Futurity Increases---And a Digression on Money Machines

Calculating PVs and NPVs

Looking for Shortcuts---Perpetuities and Annuities

39

(5)

How to Value Growing Perpetuities

How to Value Annuities

Compound Interest and Present Values

44

(5)

A Note on Compounding Intervals

Continuous Compounding

Nominal and Real Rates of Interest

49

(7)

Summary

50

(1)

Web Exercises

51

(1)

Concept Review Questions

52

(1)

Quiz

52

(1)

Practice Questions

53

(2)

Challenge Questions

55

(1)

The Value of Bonds and Common Stocks

56

(28)

Using Present Value Formulas to Value Bonds

57

(3)

A Short Trip to Germany to Value a Government Bond

What Happens When Interest Rates Change?

Back in the United States: Semiannual Coupons and Bond Prices

How Common Stocks Are Traded

60

(1)

How Common Stocks Are Valued

61

(4)

Today's Price

But What Determines Next Year's Price?

Estimating the Cost of Equity Capital

65

(7)

Using the DCF Model to Set Gas and Electricity Prices

Some Warnings about Constant-Growth Formulas

DCF Valuation with Varying Growth Rates

The Link between Stock Price and Earnings per Share

72

(12)

Calculating the Present Value of Growth Opportunities for Fledgling Electronics